Opinion: Are Harvey and Irma good enough reasons to dump McDonald’s stock?

It might seem cold-hearted to explore how catastrophic weather in Florida and Texas will impact publicly traded stocks. But many on Wall Street have already started to do exactly that, so why moralize about it?

A report this week hinted at trouble ahead for fast food giant McDonald’s (MCD) because of its many stores in hurricane-affected regions of the U.S. The stock sold off sharply Tuesday as a result.

But is such a move justified? More importantly, is this one data point in a list of bigger forces at work to keep McDonald’s down regardless of the weather?

Or is this a classic overreaction, with investors forgetting that a global restaurant powerhouse like McDonald’s can survive regional disruptions?

A deeper dive into McDonald’s shows a company with a whole lot going on. So here’s a look at both sides of the trade, exploring both the bull and bear case for the stock:

5 reasons to buy McDonald’s stock

Long-term momentum is still higher: A one-day move isn’t what most investors depend on. Instead, look at how this stock has delivered more than double the returns of the S&P 500(SPX) year-to-date with an impressive 28% gain even after this week’s trouble. Taking a two-year view, shares are up more than 60% vs less than 30% for the S&P from September 2015. Heck, the company hit a new 52-week high just a few days ago! That consistency should count for something, even in the face of declines.

Refranchising hopes: A big catalyst for those gains lately is hopes of a corporate restructuring known as “refranchising.” Simply put, that’s selling company-owned restaurants back to independent franchisees. That will trim as much as half a billion dollars (yes, billion with a B) of administrative costs related to maintaining these brick-and-mortar establishments. Just consider a great analysis by Wall Street Survivor that found “McDonald’s keeps close to 82% of all their franchise-generated revenue versus only 16% of its company-operated restaurant revenue.” Cutting out complexity as you increase profitability is undeniably a recipe for success.

Consistent beats: It’s also worth noting that if Wall Street expects growth, McDonald’s will deliver. Take last quarter, when the company beat on both revenue and earnings. And that’s after a one-two punch with similar beats in April. When management can hit their numbers like this, investors learn to have confidence.

Stock buybacks: In early 2007, McDonald’s had over 1.2 billion shares outstanding. That was down to 1.0 billion as of early 2013 and just 810 million or so currently. When a company this size sucks up a third of its stock in a decade, it’s worth noticing. Call it financial engineering if you want, but keeping the supply of stock low is a sure way provide a floor under its value.

More than big bad burgers: It’s a cheap excuse to say McDonald’s is struggling because nobody wants unhealthy fast food. All-day breakfast helps people opt out of conventional menu options. McCafe specialty beverages are pretty high-margin products, and a recent relaunch of the line could help the stock even more. A personal favorite, the 350-calorie Southwest grilled chicken salad is decidedly flavorful thanks to cilantro, lime and black beans. Tired old complaints about the menu simply don’t stand up — and increasingly, customers are seeing that for themselves.

5 reasons to sell McDonald’s stock

Persistent top-line challenges: While highly profitable, McDonald’s has posted year-over-year revenue declines for 12 consecutive quarters. Sure, its July report beat expectations and stock buybacks have juiced earnings per share. But remember, this was a company that sold over $7.3 billion of food in the third quarter of 2013 and is expected to deliver just under $5.1 billion in 2017 — a 30% decline in four years’ time.

Those hurricanes are not insubstantial: It’s logical that some investors sold McDonald’s stock, given that the restaurant chain has some 2,000 restaurants in areas affected by Irma and Harvey. In fact, Texas and Florida ranks second and third for the number of McDonald’s locations (California is unsurprisingly No. 1). No wonder data tracking firm M Science warned of a same-store sales miss as a result of these regional disruptions alone.

Valuation concerns: With a forward price-to-earnings ratio of more than 22, McDonald’s stock is trading for a premium above the forward P/E of less than 19 for the broader S&P 500. That growth premium seems especially odd given the lack of… well, growth. Back in 2012 through most of 2015, the stock had an earnings multiple in the 16 to 19 range. Is the premium really justified just because it sells breakfast all day? And while the hurricane-related selloff isn’t unjustified, is there perhaps a broader trepidation about the run-up in share price?

Disappointing dividend: Long term investors may point to income potential in this stock, but the recent dividend history is cold comfort. A headline yield of just 2.4% is only a hair better than 10-year Treasurys or the S&P 500 in general. Worse, dividend growth hasn’t wowed Wall Street lately with a bump of less than 6% at the end of 2016 and an increase of less than 5% the year before. If you’re looking for stability and yield, you have much better options right now — like these stocks I recently highlighted as low-risk dividend payers.

Big drop may shake investors: McDonald’s just saw its worst single-day stumble in more than a year, giving up an ugly 3% in a single day. For a company that’s hardly as fast-moving as a commodity stock or biotech stock, that figure speaks volumes. We could see an influx of bargain hunters in the coming days on this weakness, but given the aforementioned concerns it could instead be the beginning of a big move lower.

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